Federal push for hospital drug manufacturing faces cost hurdles

Modern Healthcare – Thursday, June 5, 2025
By Alex Kacik

High manufacturing costs could limit the federal government’s efforts to increase pharmaceutical production across the U.S.

An aging population with increasingly complex medical conditions is driving pharmaceutical growth. Health systems aim to capitalize on that expanding sector through in-house pharmacies, which executives say will help increase medication adherence, reduce hospital admissions, improve access to care and diversify revenue — if they can overcome cost barriers.

The federal government’s latest push to boost U.S. pharmaceutical production, including in hospital-based pharmacies, is a good start, health system executives and pharmaceutical experts said. But the government could still do more to try to curb persistent shortages of widely used drugs, they said.

“If we really want to significantly reshore manufacturing, we need to have a multipronged policy approach supporting the creation of and demand for drugs,” said Allan Coukell, chief government affairs and policy officer at Civica, a nonprofit company that seeks to increase access to generic drugs. “I hope that we see that, but we haven’t gotten there yet.”

The federal government has had limited success incentivizing a large-scale shift from foreign to domestic pharmaceutical manufacturing. President Donald Trump and his administration aim to bolster U.S. drug production through executive orders and public-private partnerships.

However, the relatively higher cost of American manufacturing versus buying drugs and their ingredients from China, India and other countries could constrain that push, experts said.

“Where China has the advantage is that their products are so dirt cheap. It becomes a question of, ‘How can you make the higher upfront cost of this technology economically feasible?’” said Marta Wosińska, senior fellow at the Brookings Institution Center on Health Policy. “These investments are not going to happen without the help of the government.”

Health systems that have the infrastructure and capital to boost drug production and help manage other organizations’ pharmacy operations could benefit from policies designed to increase domestic manufacturing, said Michael Abrams, managing partner at consultancy Numerof & Associates.

“This could be a boon for specialty pharmacy contractors and big healthcare players that have enough patient demand for these products,” he said. “It pays them to go down that path.”

Increasing hospital-based drug production could lead to both financial and care quality benefits, experts said.

Almost a fifth of a health system’s net patient revenue can come from specialty pharmacies, said Jigar Thakkar, CEO of Longitude Rx, a specialty pharmacy initiative launched by for-profit company Longitude Health. Several health systems formed Longitude in October to try to improve hospital operations.

“There is not only a big financial opportunity for health systems, but also an opportunity to improve care continuity as more patients take specialty medication,” he said. “This is the reason why health systems are starting to integrate specialty pharmacy into their operating model.”

Health systems such as SSM Health and Intermountain Health have continued to expand their in-house pharmacy operations.

Building out SSM’s specialty pharmacies required a significant amount of capital, the right patient population and specialized staff, said Kim Spencer, chief pharmacy officer at SSM. As a result, SSM, along with its pharmacy benefit manager Navitus Health Solutions and Navitus’ specialty pharmacy subsidiary Lumicera Health Services, can hone treatment plans for high-need patients, help patients overcome financial barriers and streamline insurer prior authorization policies, she said.

“As we see volume growth in patient areas that have complex diseases, we are getting ahead of that,” Spencer said.

Intermountain’s in-house specialty pharmacy, combined with its integrated insurance plan Select Health, helped boost the Salt Lake City-based system’s value-based care programs, said Carrie Dunford, chief pharmacy officer at Intermountain.

For instance, Intermountain pharmacists work with clinicians to help teach patients how to administer injectable medication. This team-based model can help patients stay on track with treatment and limit costly hospital stays, benefiting both the patient and the health system, Dunford said.

Still, health systems can only do so much on their own when sterile injectable drugs and other medications run short, executives said.

A long list of ongoing drug shortages threatens patient care, Dunford said. This is where companies like Civica — which SSM and Intermountain are founding members of — and the federal government can step in, she said.

“We have not had the greatest balance of where our medications come from,” Dunford said. “It would be great to have a broad view of the levers we can pull to stabilize our drug supply.”

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